Landlords face insurance rate rise By Leslie Wright Free Press Staff Writer Gene Richards was stunned when he received his insurance bill for his rental property. The premium for the next year on two of his buildings were going up fourfold, from $1,100 for a year to $5,400 for each. "I was just shocked," Richards said. "I said, 'Oh, my Lord!'" The Burlington landlord has made no claims since he got into the rental business 23 years ago. His properties are in good shape and up to code. The change made no sense to him. His broker told him the increase was because he rented to students. But that's nothing new. Richards has always rented to students. He has never seen a rate increase like this one. Richards is not alone,said Stuart Bennett, president of the Vermont Apartment Owners Association. Bennett knows of landlords whose buildings have been dropped by insurance companies because students live in them. Burlington-based Neville Cos. Inc. had its insurance company simply stop covering mobile home parks, said President John Wilking. Neville Cos., a Burlington real estate management and brokerage company, manages four parks in the state. When Neville Cos. found a new insurance company, the only one in the country covering mobile home parks, rates doubled or tripled depending on the park, Wilking said. Premium increases could be bad news for renters, as landlords pass on the higher costs, Bennett said. "It's like taxes. It's a fixed cost that is not going to go down and those types of things get folded into the operating budget," he said. "They either get folded in quickly or they get folded in slowly. There's no question it will have an impact." Wilking said raising rents in the current market is tough. Vacancy rates are higher than they have been in years and raising rent means risking more vacancies, Wilking said. "If I raise the rent enough I know I'm going to have vacancy," he said. "It's going to eat me." Richards said he would absorb the increases without raising rents. The vacancy rate in Chittenden County hit 2 percent in December, tight by most standards, but the highest vacancy rate in the county in 10 years, according to real estate analysts Allen & Brooks of South Burlington. Stocks fall, premiums rise Rates are going up for all types of property and casualty insurance around the country, said Joseph Harrington, communications manager with the American Association of Insurance Services, an Illinois-based non-profit organization that provides technical support to property and casualty insurance companies. Up until the past few years ago, insurance companies were able to keep rates stable, even taking a loss on policies, because they were making money in the stock market, Harrington said. When the stock market went into a tailspin a few years ago, the insurance companies were forced to raise rates, he said. Policies that were routinely rewritten no-questions-asked are now being closely scrutinized for risk. Underwriters are asking questions they didn't ask four years ago, like who is living in rental housing, Harrington said. "We're in the middle of what's referred to as a hard market in the property and casualty markets," said Scott Boardman, president of Hickok & Boardman Inc., an insurance brokerage based in Burlington and Richards' broker. More claims, higher losses Homeowners and renters can expect to be affected, too, Boardman said. In 1999 and 2000 clients started to see rate increases of 25 percent or so, he said. Then the Sept. 11, 2001, terrorist attack on the World Trade Center compounded matters because the insurance claim for that tragedy cost billions. That cost had to be absorbed by insurance companies and reinsurance companies, the companies that insure insurance companies. On top of the weak stock market, the frequency and severity of property losses have gone up steeply in recent years, according to the National Association of Independent Insurers, based in Des Plaines, Ill. The number of homes has increased, the value has increased and the average cost of claims has increased. The average cost of a homeowners' claim has risen from $2,733 in 1997 to $4,624 in 2002, a 69 percent increase, according the independent insurers association. In 2001 bad weather accounted for $10 billion in property damage. And claims for dangerous types of mold in homes, unheard of several years ago, cost insurers more than $1 billion in 2001, five times the cost in 2000, according to NAII. The bottom line is that there is no way to avoid rate increases, Boardman said. "It doesn't matter who you're with," he said. "It's a universal problem. You couldn't go to one broker in the town who doesn't have this problem." Contact Leslie Wright at 660-1841 or lwright@bfp.burlingtonfree- press.com